encouraging others to go forward. >> we will wait and see which actually pulls the trigger. leslie baker, from bloomberg news, covering initial public offerings. on,re on the market later "market makers" with erik schatzker is up next. >> live from bloomberg headquarters, this is "market makers" with erik schatzker and stephanie wu. >> janet yellen goes back to washington. the senators will be grilling her. what will she say? >> and the doors may take fewer customers as sears -- looks for a turnaround. if either retailer will provide -- >> google is profiting its high-speed internet service. our roving reporter out west

says why a speedy internet could mean big business for provo, utah. you are watching "market makers ." good morning. i am erik schatzker. >> and i am stephanie ruhle. first, it is his birthday -- >> i am a huge done -- johnny cash fan. >> it is time for other news, top business stories around the world. the political crisis in the ukraine is spreading as gunmen seize the parliament building in the crimean region and russia has put fighter jets in the area on combat alert. the next prime minister of the ukraine believes that russia will never intervene on a military basis. the government has finally turned a profit on the bailout of freddie mac. mortgage finance or will return $10 billion to the federal treasury department next month. all are required to return

profits as a condition of their bailout. freddie mac and fannie mae have billion in taxpayers have actually profited off of the bailout. wall street has learned that you can't always take jamie diamond literally. diamond -- dimon literally. they said, this is just the weather. this is part of the brutal winter weather that he has been that's the we have been having, but he says he did not mean that. market values are conditional and these things happen. analysts, you should know better. >> analysts are hanging themselves on every word. >> indeed, they are. fed chairman janet yellen is on capitol hill for the congressional testimony that got snowed out two weeks ago. she appears before the senate banking committee and in a few minutes will deliver her opening

statement. this lack of her testimony before the house services committee. we have had fresh economic data since then, and the questions will be different, too. we bring you coverage from both ends of core doors of power. east coast correspondent peter cook is on capitol hill, and michael mckee here with us in new york city. if there is news to be made at this hearing it is almost certainly coming in the q&a portion. we besenators should watching most closely? >> a couple of senators to watch. he will get a polite greeting from the senate banking committee as fed shares generally do. the two people i would watch most carefully are bob corker from tennessee, the republicans backing janet yellen's confirmation but he has questions about fed policy and the expansion of the balance sheet, and this is about how

aggressive he will be and how far he will push her, with that $10 billion reduction pace. on the democratic side, there is elizabeth lauren. yellen,acker of janet since her name was first put forward, and larry summers -- she has pressure with the oversight of these banks and they want to see how aggressively elizabeth lauren pushes janet yellen to push up oversight of the big banks. and more news off of the top. the chairman johnson will challenge yellen about tapering to quickly. he will caution the fed not to move too quickly to exit from its current policy, that we are on solid footing and the recovery is widespread. the message is, be careful you don't taper to quickly. >> as we can see, senator johnson is still speaking and we will come back to you throughout yellen's testimony.

chief washington correspondent peter cook. michael, what would you ask janet yellen if you were a senator, who happened to be on the senate banking committee. >> the third point that peter made about what they will be talking about, that is the fed comments about changing their guidance in their january minutes. the don't like taking markets advice but with the 6.5% threshold basically obsolete, what is the next at the forward guidance? we have at other fed officials on these programs, jim was with us not long ago, and talk about quality of guidance. what does that mean, can you give us some kind of idea? that is what i want to find out because it will set the tone for how people trade. >> last month, given the quality of unemployment, this is qualitative. we are backtracking echoplex they got to the top faster than

expected because of a lot of reasons, potential rates -- this is not just one number, the broader labor market. what kinds of markets will they see with participation rates, part time in that sort of thing? >> that just leads to more work for you, michael. >> full employment for economic editors. >> i would like to bring in my guest host for the hour, peter you --dean of the him i mio school of business. it is a great day to have you here during janet yellen's testimony. what are you hoping to hear today. your students who are new to the business and economics, they are listening. what do you take away from here cap go >> the first thing, labor markets. the economy added 254,000 new jobs, in january, 114,000. to put that in perspective, with

growth of one percent per year, the united states needs $150,000 -- 150,000 jobs per month to stay even. with robust jobs growth on the order of 102,000 plus, the labor market is going to continue to be a challenge. >> to the point that michael mckee was making, to the extent they will have to look at this, you can't just pay attention to job growth and the unemployment rate. labor data is complicated and noisy these days. how much of a challenge is it for janet yellen, that she, just like in england -- is running to the problem of guidance? >> the big challenge is communication and following. right now, there is a lot of slack in the system, inflation is not an issue and there is no sign of an economy overheating. but the question is, how do you communicate that when you have put out the status on the

unemployment rate? how do you indicate that the unemployment rate, in his current environment, with 6.7% -- with longer unemployment, is not like 6.6% unemployment in normal times? >> but mike, how do you communicate that? >> it will be difficult to do that and you will have speeches you make to give people guidance on what is going forward. i want to ask about the statement of inflation not being a problem. betting that inflation will rise over the coming months and the question is, how much is slack is there. on bloomberg surveillance tomorrow -- they argued it -- he will argue, this is much more dangerous than people think. saywill see chairman yellen that they will follow strict policy that will look at the labor market for reasons that we mentioned but this is not the only thing they will look at. they will go day to day to make

sure they are not too soft. >> what kind of market can ben bernanke handoff to janet yellen? >> i would much rather be in her spot than his spot in 2008. i think that ben bernanke did a wonderful job of communicating that we are moving to tapering, and handing chairperson yellen an economy where this had been put in place. >> but is in job even tougher? for ben bernanke, things were so bad that the only way was up. he had toe had to do, pump money into the system and get the vote going the right way. keeping it afloat is going to be tricky for her. >> no question. i would rather have a stable economy. in which you have these very subtle communication challenges. likes you say the labor market is the single most important thing for the fed to be paying attention to. but people are beginning to say more and more and more that the fed could be behind the curve

when it comes to the fed -- labor market, because there are structural forces like automation and robotics that change the labor market, and that economists don't understand because they have never seen that before and cannot model. >> here is the key point. there are short-term challenges and long-term challenges. the fed has asked, what do you do for a stable short-term environment? there are long-term challenges, and if you go back to 1970, at that point in time, one in four workers needed post secondary education. the fact we are not producing enough high school workers to keep up with a manned, jackson should show that a ship -- there'll be a shortage of 1.5 million high school workers in these corporations. -- high skilled workers. in these corp. -- high skilled workers in these corporations.

we have to find high skilled workers for these organizations, .nd that is the challenge >> you look at the s&p 500, you look at all of these companies and their multibillion-dollar market caps, and the employees that they have, 100,000, 200,000, walmart has 2.2 million. and you look at facebook, with 6000 employees. the jobs of the future will be what we have in the past. if you are going to make it in the new economy there has to be a change in the way that we prepare people for it. such a polite lady, janet yellen, saying, this is on you. >> we will be checking back with you, and who better to get the real deal from that michael mckee and peter, who will be joining us for the entire hour. we need to take a break now. when we come back, we will talk jcpenney, where shares are soaring today. up 27%.

jcpenney has been promising a turnaround. the question is, is it finally here or is the market overstating things? go to your phone or tablet or bloomberg.com. of our can check out all programming on bloomberg tv. ♪

>> first, bloomberg. >> you are watching "market makers" on bloomberg television. we ask this question, is jcpenney finally turning a corner? shares are up after jcpenney reported a strong holiday season and its first courtly profit in more than two years. also postedman revenue in 2014 and we are looking at the performance with uss-gilbert, who has

underperform on jcpenney shares even after the earnings report. and with us the stern school of youness dean, so, mary, do remain as skeptical on jcpenney as you have been over the course of the last year? then,were reasons for it it seems like there are less reasons today. >> just to be clear, we have been very favorable on a turnaround, but that does not justify where the shares trade. as we have said, historically, even if they were to recover $1 billion and in the first quarter, they deposit 72 million for the first time in many quarters they posted positive, and less they got to $1 billion, in our estimate we have brought it down to 500 million. the recovery is very gradual. you cannot justify the current share prices. we are pressed to come up with any value for the shares. the reason is the hefty debt

load. they have 5.6 billion in debt. we are seeing some favorable momentum so we are not surprised to see the shares up, but the way to play jcpenney is to buy the long bond, which was in the 60's yesterday and today they are in the low 70's and just like those bonds, we think they have further upside. we would rather have jcpenney that way. we are very comfortable with the estimates for the year, with increases in comp sales. our comp sales estimates are slightly higher and we think that they are benefiting from being in the home business this year. last year, they were out of the home business. .> those were out last fall >> kyle is a smart guy. >> is it fair to say that if we look at where shares are trading, this is kind of justified. if you look at the entire retail landscape, everyone has been blowing it out.

with many other companies you can see the same thing. thing could say the same in terms of coming in with better performance. >> with whether the shares are trading. >> oh yes. >> you could justify where the shares are trading. you could say that about many other companies as well. >> i look at shares of macy's and dillards. i would say that those shares still represent attractive valuations. macy's is trading at 6.6 times gdp-a and they are trading for more than jcpenney. >> looking at the broad term, what is jcpenney's plan for dealing with the middle income consumer in the united states? >> i think that continues to be a challenge and they are very promotional. i think they provide a lot of value to that consumer. that is the private brand strategy.

at one point the private brand was over 50% of their revenue. this has declined during the johnson era, but now this has been brought back and those resonate with the consumers. they provide high margins to the company and at the same time deliver good value to the consumer. i think that that is going to address that. as you can see, the retail environment is so competitive and that is why you see a gradual improvement in sales, after a pretty steep decline. >> the real question is, how do you see consolidation in the sector? who do you see as being the top players? >> clearly, let's say on the higher end, in terms of the consumer calling it sort of the better consumer, i would say macy's is definitely showing strong execution, and i think that on the moderate side, coles an edge but carved

i think jcpenney will be a survivor. we will see retail boxes shrink. we will see net store closings because online is continuing to be a big part of the business. >> mary's job as an analyst is to look ahead. atsome respects, your job the business school is to look back, to try to divine the lessons of history. the jcpenney collapse -- and turnaround, is is going to be a business school case study for years to come? >> there are parallels between jcpenney, the turnarounds and country turnarounds. >> country turnarounds? >> country turnarounds. countries that turn themselves around. over the last few decades, the third world countries in these markets, they did their turnaround by doing three things. they were disciplined and they brought clarity, and discipline and clarity bring trust. it is the same thing for

corporations. focus on the future. how will you deliver value to the company? clarity about the change of direction. and with clarity, you have trust. >> which country or two countries, offer good examples like jcpenney? >> one of my favorite examples is a country that is focused on the long-term, the country of chile. to give you a very quick story, in 2006, they were booming. the citizens -- and one of the finance ministers wanted to see a fiscal surplus. a number of things. >> a number of things and he refused to do it. he said that this was money for a rainy day. when the crisis hit in 2008 they spent money on the stimulus program. is that focus on the future and long-term strategy at these companies use. look at ron johnson

as the worst retail ceo ever? >> certainly, the strategies he put in place did not make sense. for jcpenney. >> no doubt. mary, thank you for joining us. ross-gilbert, joining us. >> we will go back to capitol hill a few minutes from now. senators will have their questions ready for secretary janet yellen. that is next. ♪

>> welcome back to "market stephanie ruhle. janet yellen just finished her opening speech. what did you hear? >> she deviated from the opening

statements delivered to the house in one significant way on the economy. chick knowledge in the two-week period -- she acknowledged in betweenweek period --n she testified -- thea with her when she testified. the afc will look into this, the numbers may be weaker than they thought. and this bears close watching. >> what do you think that we should be paying attention to next as the questions begin? >> i don't think that peter heard you. >> i am sorry, was there a question? >> we will go to the hearing, right now. respondinget yellen, to questions. >> this has been appropriate for quite some time. there is no conflict at all. this is the moment between the

two goals that congress has signed to wes, promoting maximum employment and price stability, inflation is running well below are two percent target. as you indicated, that gives us ample scope to continue to try to promote a return to full employment and we are committed to doing that. yellen, what approach has the fed taken with respect to insurance companies , 100 65 ofew rules frank?ank -- 165 of dodd what are the rules for insurance companies under this amendment? senator, we are looking very carefully to design an appropriate set of rules, for companies with important involvement in insurance.

are veryize that there sniffing differences between the business model of insurance companies, and the banks that we supervise. and we are taking the time that is necessary to understand these differences, and to attempt to requirements that would be appropriated to the business model of insurance companies. however, that the collins amendment does restrict what is possible to the federal reserve in designing an appropriate set of rules. constraint, onme what we can do. towill do our very best craft an appropriate set of rules. ways could the

designation be made -- the designation process could be made more transparent? >> on this one, senator, i think that they have provided the public with a good deal of information. but that is the criteria that is used in the general criteria that it is established for, attempting to determine whether or not an institution or organization should be designated as assistance. in the cases of those organizations where it has made a designation, it has really provided a wealth of information about this organization, there -- there are also opportunities for companies that want to contest designation, to have an appeals process, so there is really a well worked

out process. as they go on to consider other designation,s, for if it decides to use a different set of criteria, i think it is completely appropriate that the f stock should also make clear, that if new criteria are being used >> how is recovery impacted ? what canincome congress do to address this major problem? of income the issues countryty in this really date back many decades -- probably to the mid-1980's when we began to see a very substantial widening of wage gaps between more skilled and

less skilled workers. this is a trend that unfortunately has continued almost unabated for the last 30 years. economists have debated exactly what the causes are. technological changing, globalization, they play a role. i think it's clear that the recession has placed an extremely high toll, ,articularly in special burden on lower income workers. those workers who are less educated, who have seen their unemployment rates rise disproportionately during the downturn. household segments over a population that had already been suffering, stagnant or declining incomes for many years. they have seen the recession

take a large toll. they really has been a very large burden and it is our objective to try to get the economy back to full employment to alleviate that portion of the burden. things like education and training are on every economist 's list. ,t early childhood education training, more generally, those things. congress could address these important issues. welcome to the committee. i appreciate your time a couple weeks ago when he discussed gse reform. you said that we still have a system that has systemic risk. reforming fannie and freddie is

a priority for this committee and i would like to ask you to just take a couple of brief moments to discuss the need to bring private capital back into the market. support and urge the congress to address the issue of gse reform. system gotten a mortgage in a way that highly or mains very highly dependent -- that highly remains very dependent on government backing. there are a number of different ways in which congress could proceed with gse reform, depending on your assessment of appropriate priorities. my personal view, it is simply very important for explicitly decide what the role of the government should be in housing, financing

and other possible choices available. in terms of bringing private capital back to the market, we now have a system where almost all mortgages that are being is country have government backing associated with it. to see private capital return in full amounts to the mortgage industry, clarifying the rules of the road, is important. i would certainly urge congress to proceed in this area. >> thank you. i appreciate your observations at this point. as i stated in my opening statement, i'm very concerned about. frank implementation. hope you will communicate with congress if there are statutory ambiguities or obstacles that prevent the fed from doing the .ight thing in that context, i would like to ask if you agree -- when

chairman bernanke he was before us last year, i asked him the same question. i would like to know if you agree with him that the areas of andusers, swaps, push outs reducing the regulatory burden on community banks are areas in which we need additional statutory attention to getting it right. >> the three areas that you mentioned are ones that are high on our list of concerns, areas that we are looking at ourselves. as we designed the dodd frank regulations, and all of these areas, we are doing our very best to address in these areas you have mentioned issues that have been raised and we consider quite appropriate. it make sense to me that congress should consider these

areas as well. best in writing regulations in these areas however to address the concerns that have been raised. >> thank you. i appreciate your attention to it. i also believe that you need additional clarification and strength under statutes to do it right. i hope that we will be able to provide that from congress. next, in numerous hearings last year, it was revealed that we need better international coordination on cross-border issues to when sure that there are no interruptions in the financial system. immediately after the fed finalized the section 165 proposal for foreign banking organizations last week, european commissioner michelle's office issued a statement that the feds rule conflicts with the international standards on cross-border operation in bank resolution. steps are you taking to ensure effective coronation with your foreign

counterparts to create a couple couple mentor he system? omplementary system? is essential. we are very actively engaged through the financial stability board, through the committee, through the relations we have with insurance regulators, attempting to craft regulations in all areas that are consistent globally and that mesh together as a successful system. banhe area of foreign on sectionzations

165, we faced important trade-offs. role of large foreign banking organizations in our capital market has changed dramatically over the last 20 years. these organizations are among the largest and most systemically important organizations in the u.s. financial system. we try to write a set of rules that provide a level playing field for both u.s. organizations and foreign banking organizations, doing business in the united states. place,es that we put in i believe, are really quite similar to what our own banking organizations face when they do business abroad. construct a set of rules that preserve the opportunity for cross-border, international, global capital

flows. branches and agencies of foreign banking organizations can without to operate separate capital requirements of the united states. but it was important to put in place a set of rules directed to financial stability of our own markets. >> thank you very much. >> senator reed. >> welcome, madam chair. ownmarket committee has its time to make the point that we , as the federal reserve is pursuing expansive monetary policy, we are pursuing a very restrictive fiscal policy. , it will be harmony better for the overall economy. there are several examples. our current debate about unemployment compensation, most objectives would suggest that from add anywhere

180,000-2 hundred thousand jobs to our economy while at the same time helping people who need help. we are in the process of trying to figure out if we can find our highway -- fund our highway system after next september. fiscal example of how policy could aid your efforts. can you comment on this inherent cost purpose activity? beenscal policy has really a potential drag on, spending more in the u.s. economy over the last herbal years. yearbo estimated that last , the fiscal policy drag probably subtracted 1.5% from growth. lesseng is likely to substantially during the current year. but nevertheless it remains.

that because there has been fiscal policy drag, the burden on monetary policy has been larger. this is true not only in the united states, but in a number of advanced countries in europe and in japan as well. my predecessor has always urged congress to recognize that there are substantial long-term budget deficit issues. the need for sustainable fiscal path through the country to focus to the maximum extent possible on fiscal changes that would address the longer run issues that will be associated ratio rising debt to gdp over decades and to try to avoid doing harm to the recovery. i would take the same general position. a in the short run, there is

value of additional physical stimulation in the economy that will complement what you are already doing and make it easier to withdraw the quantitative easing. is that a fair comment? >> i do think the economy is beginning to recover and we have made progress. minimum i would hope that fiscal policy would do no harm. >> one quick question. you and your predecessors have looked at the unemployment rate of 6.5% as a point of inflection if you will. one of the aspects of the labort situation is that participation is falling. that 6.5% might not actually capture the reality of the current economy. to be an adequate measure of undertakeeds to do to

monetary easing. are you looking at other ways or looking beyond this unemployment rate to gauge your actions? that 6.5%first say unemployment is not the committee's definition of what constitutes low unemployment. -- theubstantially lower 6%.ency is under si it was meant to be the committee saying, look, the unemployment rate is above that, we see absolutely no need to consider any possibility of raising rates. below that, we begin to look more carefully. as we do so, the unemployment rate is not a sufficient

statistic to measure the health of the labor market. 5% of our label force is working part-time for economic reasons, which means they are unable to get full-time work but want it. that is an additional 7 million people who are involuntarily employed part-time. fractionsusually high of americans were unemployed and have been for substantial amounts of time. as we go to a fuller consideration of how it's labor market is performing, we need to take all those things into account. >> thank you. >> senator shelby. >> thank you. thank you for being with us and congratulations. i want to talk to you a little bit about the portfolio of the

fed that has been mentioned. i understand it's about $4 trillion at the moment. you have tapered off some of the fed and the board of governors. you are still buying at current rate by $65 billion a month. at that rate, if you don't taper substantially or stop, you will be getting up toward $5 trillion in the year or less. is that correct? >> we are around $4 trillion. taper --'t continue to >> even if you taper, you will continue to buy. if you taper down from $65 to $50llion billion, that a substantial in the market. >> we have indicated if the economy progresses as we anticipate, we expect to

continue reducing the basic purchases in measured steps, which would mean ending completely the purchase, winding down and ending some by next fall. >> are they mainly treasuries? >> yes. >> what is the relative ratio of that one or the other? relatively. >> i believe we have a larger quantity of treasuries than mortgage-backed. i will be happy to furnish that number for the record. a portfolio that size, which is unprecedented, chairman bernanke he has told us before that it would be a big challenge. do you agree with that gekko >? to and have noed

intention of quickly winding down that portfolio. -- is it your plan to keep some of the mortgage-backed securities and treasuries from maturity? >> we have no intention of selling mortgage-backed securities. ofn we begin the process immortalizing monetary policy and wanting to tighten monetary policy, we are going to have a look at permitting runoff out of our portfolio as these securities mature. runoff -- we will bring down our portfolio over time. even without sales. my predecessor has emphasized and i agree, there is no need to

bring down the size of our portfolio in order to tighten monetary policy. we have a range of tools that we can use to raise the level of short-term interest rates at the time that the committee deems appropriate. that is a way off. develop tools to make sure that we have an arsenal of tools to be able to tighten conditions as appropriate and not have to do asset sales or manage our portfolio in any way that would be disruptive to financial markets. >> i proceed to regulatory sides of your duties here as chairwoman of the fed. to be in effect,

is it not gekko when he 15? ? 2015? capital liquidity, so to speak. >> i believe so. he mentioned the foreign banks and so forth. will you as regulator make sure that the foreign banks comply with our capital standards just like our banks have to in doing business in the united states of america? >> yes. we have said that foreign banking organizations that have over $50 billion will have to form intermediate holding companies to organize their activities other than branching activities in the company that the sameubject to

regulations as us-based banking organizations. that is the essence of the proposal that we finalized two weeks ago. >> thank you. my time is a. >> senator shuman. you, cherry ellen. you're off to a great start. , chairman yellin. -- chairman yellen. if congress a dunmore, the fed would not have to do this. samesome of the very senators to block all further needed investments in infrastructure and other things that used to have broad bipartisan support complain that the fed is doing too much to help the economy. it is incredulous to me. you don't have to comment on that. what do they expect you to do ?

fiscal is preferred, but is not available. my question, first relates to tapering. i know you testified and you are surprised, those were your words, by the data in the jobs reports in december and january that indicated that the fed had no intention of altering its tapering program despite the fact that the economy may not be showing the growth you originally anticipated. in your analysis of the data , have you seen any trends or additional information that has led you to reconsider slowing or pausing the tapering of the fed's bond buying? >> as i mentioned in my opening remarks, we have seen quite a bit of soft data over the last month or six weeks. report wasent

relatively low, below expectations. growth in payrolls, some of the housing numbers and retail sales and industrial production -- it is really quite a range of data that has been soft recently. eatherk it's clear that wheth has played some role in much of that. there are many ways in which eather affected these. what we will need to do in the weeks ahead is to try to get a much ofandle on how exactl that soft data can be explained by the weather and what portion is due to a soccer outlook? -- soccer outlook? er outlook?

if there is a significant change , one would be open to reconsidering. i don't want to jump to conclusions here. aboutnext question talks some of the qualitative versus quantitative guidance. fed reserve president lockhart said recently, for the next couple of years -- >> that's chuck schumer. you are watching janet yellen's testimony before the senate banking committee. herewith is a speaker henry. he is the dean of the school of business at new york university. peter, she has spent a lot of time answering questions about the labor market. we were talking about -- >> those are the two most important words. >> you called it. any conclusions about what you heard? >> the thing to focus on is this

next chapter for the fed is hero to be to switch from to playing a monetary role in fed is very-- the careful. the other thing she said, which interestingly is beyond the fed, is this issue of income inequality. give a sense of the numbers. in 1980 fewer high school graduate and you compare the average wage to a college-educated graduate, he made about 20% more than you did. today, the college graduate makes almost twice as much as the high school graduate. almost twice as much. as chair yellen said, the two drive that primarily

are globalization and technology. there has been increased demand for high skilled workers. >> those will find us on the wrong end of the inequality equation? >> if you're a high school educated worker with no postsecondary education and you go into the labor force, 90% of the low-wage jobs are held by people with only a high school education. how do you get more people into high school category? >> you are the dean of the business school. you're looking at people in their late 20's going to serious debt in order to get a higher education and a great job opportunity. are there better opportunities now than there have been? this is a huge debt load they are taking on. also have 2300 undergraduates. here's where the key lies. if you're a high school senior , you haveted states

an 85% of going to college. if you were born in the bottom % chance. 80 group whos in that score in the top 10% of 17% fall in tests, the bottom quartile. >> it's not just an education problem, then. in the 1980'sg was the reagan tax cuts. maybe some of this is a structural economic explanation. >> there is a nation. we are not recruiting enough high school workers. we are not making it easy enough for smart kids from low incomes to go to college. >> great to have you here. peter henry. he was our guest host for the

hour. more yellen testimony when we come back. ♪

>> live from bloomberg headquarters in york, this is "market" with erik schatzker and stephanie ruhle. >> question time. we returned to capitol hill where janet yellen is taking questions from senators about the american economy and the fed 's historic stimulus program. >> russian stocks tank as the ruble follows. fears of conflict might turn into something else. i reporters talk to the ukrainian prime minister. >> vico. the controversial arizona law that would have allowed toinesses to refuse services

gays is officially be towed we will be to business groups about a fight -- the fight. welcome back to market makers. >> it is 11:00. you have been watching together with us, live coverage of janet yellen's testimony on capitol hill. she has been answering questions about the taper, for example, and what the fed is going to do about his gargantuan balance sheet. she has been taking questions on labor markets and also inequality. she has had some provocative answers and has deferred from times -- deferred at times from what we heard from ben bernanke e. we have michael mckee. listening along help analyzenry to

the coverage. what stands out to you? >> she is pretty much telling everybody that nothing has forecastanged. their is that the economy will get better by the end of the year. they continue with their taper. >> the weather was the big question. >> they will not go back unless things change. she will not put a figure on it. everybody understands that to t they expect $1 better in the fall. >> you have been listening to her as well. we were talking to about the questions that senators were asking and the posture that certain people would take. any surprises for you? >> no real surprises except perhaps the aggressive tone coming from democrats, including the chairman of the panel and more recently took schumer of

new york, basically prodding janet yellen to commit to maintaining the bond for turning up the taper of the economy does not play out as the fed had originally forecasted. this is a more aggressive tone from democrats come urging her to consider that. they're not saying flat-out, the economyhave going down the tubes here. it's a more aggressive tone. we are not there yet. we have not seen enough numbers out there to suggest that we keepd consider to doing that. a surprise to me that democrats have taken that line of questioning while at the same time trying to talk about improvements in the u.s. economy. >> janet yellen holding her ground him as you say. let's remind everybody of what she had to say. indicated that if the economy progresses as we

expect to, we continue reducing the basic purchases in measured steps. which would mean ending completely the purchases, winding down and ending sometime next fall. read the keyow to leads. using those glasses, is there thating in her testimony makes you think she could be taking another direction? , shest of what she said has said before. it was interesting question -- there was one interesting question about her exit strategy. she said they do not have to sell any of their bonds and break down their balance sheet. they can let things run up until the make that decision as things go along. it is a message of steady as she goes. steady as she goes. we will check in with you later. we will go back to capitol hill in just a few minutes. i want to take you to some other

news of the day. overseas, starting with the ukraine, where pro-russian government has taken control of government buildings. ryan is in kiev. ukraine's new prime minister. what did he have to say? he is an interesting one. the parliament here has just voted in a new government. the job of which will be twofold. and make the country sure that they are able to get enough money off of international creditors to pay the bills in the run-up to the election. they owe an awful lot of money come june. the u.s. has said that they will pony up $1 billion in the form of loan guarantees. clearly, they are under pressure.

country's newhe prime and asked he think he can pull it off. >> we will do everything. we have enough focus and if we get the financial support from the united states, from the european union and the imf, we will do it. what he is not so certain about is how this will reflect on him. he is quite certain that no matter what happens, he will least as this country's popular prime minister ever because there are conditions that come with that money. maybe we should look at this as greece 2.0. >> what does the situation look like now? >> just before dawn, a group of 60 gunmen entered the regional legislature there. they took down the ukrainian flag and praised the russian

flight. then we had the parliament gather and voted to hold a referendum at the end of the day just before the presidential vote where they will decide if they are going to secede from the ukraine. know, nor isly there any evidence that russia is a country has anything to do with it whatsoever. nato is concerned that just over the border, russia has been holding military exercises. anglo merkel says that the russian president told her that he wants to make sure that the ukraine remains whole. russia has no plan to intervene militarily. >> thank you so much. joining us from kiev. stay warm. stay safe. thank you for the update. in a moment, we will go back and hearapitol hill more from fed chair janet yellin. you're watching market makers on

bloomberg television. stay with us. ♪

>> welcome back. ,ight now come you see david the senator from louisiana questioning janet yellen. the fed chair testifying before the senate banking committee. let's take you back to washington right now. >> in contrast to that, there has been concern that you might follow europe possibly do in watering down some other provisions from the initial draft concerning things like weaker treatment of derivatives and evaluation of repurchase agreements. can you give us any insight into where those things stand in your discussions yo? >> let me see if you understand -- if i understand what you mean. we came out with a proposal for the 5%. >> is there any chance that will

change in the final action? >> this is something we've been quite supportive of. i'm not envisioning -- >> ok. deeper in the weeds come if you will, there has been some that you could back off some other elements of the draft. for instance, on issues like the treatment of relatives and valuation of repurchase agreements. is that any possibility? >> i would hope not. i would encourage you to not weaken any elements of your draft. is that under discussion echo ?> >> i will have to look into that. my objective would be to come out with a strong proposal with increased risk-based capital requirements in light of that increase.

i see leverage in risk-based in suspenders.ilt- it is in my view appropriate to increase leverage requirements more or less in line with risk-based capital requirements. encourage aust incorporat strong final set of proposals or as strong or stronger than the draft. i would encourage that. let me move to one other topic i wanted to hit. thisis actually related to too big to fail issue. concern aboutve a the squeeze that community banks are getting in the financial sector. that has been a stork, long-term trend. it has gotten even a lot worse since the 2007 crisis and se

frank.dd if you look at federal reserve board membership, there is also a trend. from representation of any community banking or community bank supervision experience. the chart is up. this shows -- it shows the makeup of federal reserve board members over time. bank and community bank supervision experience, which is the yellow, is limited. there's been a huge growth over time in terms of folks with pure economics and academic background. in particular, right now, there is one person with that sort of community bank or community bank

supervision experience. she is leaving soon. what will your thoughts be about a requirement to have at least one person in the future with that type of community bank or community bank supervision experience? >> i have had the privilege of working with governor duke. i can certainly state that they made huge contributions in the community banking area and the backgrounds that they were able to bring was extremely helpful to us in crafting regulations and approaching our supervision responsibilities with sensitivity to the special issues that community banks face . i hope the administration would consider an appointment of someone with that kind of experience. i can certainly

attest it is very helpful to us in doing our work. >> senator brown. >> welcome. your publicr service up until this moment and your continued service. thank you for your comments and questions about capital tondards and urge you present your answer for occ moving as quickly as possible. thank you for your column. your response to me about the real economy in your confirmation hearing as the board released transcripts of , the008 fomc meetings reading was interesting for those of us that find the stuff interesting. the fed has a dual mission fighting inflation, maximizing employment, but according to the new york times, as of september, meeting where

fomc members mentioned the inflation 129 times and recession five times. you speak forcefully about the potential threats to the broader economy. the statistic implies that the institution over looked what was happening on main street during this critical time. you are your chair -- chair, convince us that we will not see meetings like that were the emphasis is so much more on inflation than low employment. the focus will be more unemployment -- more on employment. fed think, as you know, the took the mandate very seriously. we believe we should be focused both on inflation and on employment. situation and8 context, if you think about what

happened within months of that september meeting, where perhaps people do not realize just how serious the deterioration in the financial markets and the economy was about to get, within days or months of that meeting, of most incredible array programs had been rolled out by the federal reserve to address deteriorating economic conditions. an alphabet soup of programs to support credit, the availability and extension of credit to route liquidityy to provide , not only to banking organizations but to markets that were really finding themselves to pride of this -- finding themselves deprived of this.

with dimensions of inflation, the fomc had certainly changed its focus. in december, the rate plunged to zero. they were urging more, faster, we need to get on this. within three months, a great deal had been done. since then, we have been trying to do it. fedome sense, i think the has responded. to your credit, you look better in those minutes than some of your colleagues did. that is the past. you look at the future. i want to follow-up on some of the too big to fail questions. you said addressing too big to fail is among the most important goals. you mentioned capital and resolution authority and long-term debt requirements and supplemental leverage ratio and a living will to break up institutions that they impose upon a grave threat

to the financial system. despite all that, the nation's foremost expert on banking r governors, you ar said on tuesday that we are, "not even close" to ending too big to fail. it has been five years since the crisis. you have the tools. why's it taking so long and when is this going to be resolved echo when cad? when will the american people know that too big to fail has actually ended? >> i'm surprised that he said that we are nowhere close. we have made quite a lot of progress in putting in place a regulation that will make a huge difference to this. even an orderly resolution, i think it is important that we discussed the long-term debt requirement.

there are thorny obstacles to havingng a failing firm to do with cross-border resolution issues. fact thatl with the laws in foreign countries could make it impossible and precipitate the ending of contract that would cause a disorderly failure of the firm. we are working very closely with our foreign counterparts to try to resolve these issues. of all thelist things or some of the things that we have on the board that we are hoping to finalize within months or during this year. beyond that, we are working on shadow banking. our stress test capital in the banking system, the highest quality capital has doubled since the crisis. i personally think we are making strides and i completely am

committed to seeing this agenda to fruition. i am more encouraged about the progress that we are making. >> thank you. one last comment. quick -- accelerating the rules without diluting those rules is really important. not just a substantive thing to do, but an important message to the public that you really mean it and you mean business on this . thank you. thank you very much. thank you for being here. thank you for listening. i know as a former chair for my san francisco federal reserve, you have a pretty good understanding of the state of nevada. it has been over five years now

since we have had this economic collapse. i want to take a quote from the president of the st. louis reserve that recently said that we are a lot closer to a normal economy than we have been in a long time. that nevada is nowhere close to a normal economy. maybe some parts of this country are experiencing some recovery. 8.8%a is still at a unemployment. i guess the question is, do you feel the struggle that nevadans are currently experiencing -- is this a new normal according to the president? economic variety? >> nevada was one of the hardest hit. it had one of the biggest booms in housing.

anyt the biggest bust of market in this country. i am well aware of the unusually large share of homeowners that is underwater. up.es have come they're coming up in a way most rapidly in some of the areas felllas vegas, where they the most. it is still going to be a long slog before things are back to normal in the housing market. thoseada and some of hard-hit areas. prices are moving back up. andee investors coming in buying homes and converting them to rental housing. credit is really hard for many people to get. the ability to have home equity loans when it has been wiped out , that is unfortunately nevada

where it has been most affected. >> any time frame for a new normal? >> seven years, i think. me what yourve definition of full employment is? is a state of the job market in which people are able to find any reasonable. jobs for which they're qualified. there is no single metric i would say that would enable you to tell when you can reach that. i would look at a broad range of indicators. the unemployment rate, if i do choose one metric, the unemployment rate is probably the best. aren't of our committee certain exactly what constitutes low employment. generally come you see a range , you see a range of five

percent-six percent. also, looking at part-time employment, job flows, what is happening with wages and a broader set of metrics is necessary. >> what is real unemployment today? >> some of the broadest measures of unemployment? like you six, which includes workers were part-time for economic reasons that can't find full-time work are at 13%. the congressional budget office recently reported that president obama possible to raise the minimum wage would 500,000 jobs. 500,00

it is your job to maximize employment. i would like to hear your thoughts on this soft economy and the impact of raising the minimum wage. >> i think almost all economists think that the minimum wage has two main effects. one comment is to give higher who have jobs and are earning the minimum wage. have someey would b negative effect as a consequence. there is considerable debate about what the unemployment impact would be. anyone toqualified as evaluate that literature. i would argue with their assessment. there are a range of studies and a society th they cited them.

i can remember the numbers involved, but they indicated a large number of individuals would see their incomes raise as a consequence. that is the trade-off. >> thank you. i want to welcome jerry ellen. i thank you for putting yourself forward. yellen.me chair discussed,e clarifying the end-user exemption from the margin that was included in doodd frank. we have visited chairman and he indicated comfort with the intent of exemption given the lack of systemic risk.

since the proposed ruleo issued back in 2011, there have been a number of additional development scum including the framework in september, setting forth margin standards. can you share with us where the fed stance on this issue in light of those development? s? >> end-users do not pose a systemic risk. and craft a back rule in light of the international negotiations. i believe that we will do our very best to make sure that posedare no undue burdens on and users that do not pose systemic risk. are many issues that you are dealing with everyday. people are always asking you

when is going to come out. when is the timing on that front? >> i can't give you a date. >> before the end of the year? >> i believe so. >> the chairman talked about banks and regulatory policies. in the final rule released last week, section 165, the fed declined to apply the rule to non-bank financial companies at this time and indicated a desire to basically tailor this rule for insurance companies. can you tell me more about what the fed has in mind with respect to the tailoring? >> we understand that the business model -- >> and exchange with fed chair janet ellen. -- janet yellen. welcome back. -- the fed chair

has covered a lot of ground as expected between inequality, unemployment, the labor market, etc. we talked about the weather and the questions that have been for the impact. ofit has been the volatility the markets. when into 2014 expecting this to be a better year. the stock market had gone up a lot through november and december. all of a sudden, the markets were going down, the weather was terrible, the economic data had gotten bad and we have seen companies start report more disappointing earnings. everybody on the hearing committee started turning to asked what to do about that. she gave the same answer. here is what she said. closelyve been watching at the recent volatility in global financial markets. at this stage, these of elements to not pose a substantial risk to the u.s. economic outlook.

we will of course continue to monitor the situation. >> we will continue to monitor the situation. that is basically all they can do at this point. at very high hurdle to slowing on the tapering because that will send a message to the markets that something is wrong. they don't want to make it even more upset. have you been surprised that they keep asking about over guidance? the fed said some -- set some thresholds. >> nobody has asked her directly, what are you going to put into the statement? that for people on wall street would really like to hear. a lot of folks in regulation. asking thoser questions. she had a tough time in the -- much more prepared today. >> thank you. that is michael mckee. for those of you who want to

continue watching her testimony, please go to bloomberg.com. when we come back, we'll will be talking about the fallout in arizona. what kind of price will the state pay for that bill the echo opponent save would've allowed discrimination against gays and lesbians. it was vetoed. the legislature to get pretty far. ♪

.> veto that is what jan brewer did to the controversial anti-gay bill that drew opposition from everywhere from apple all the way to mitt romney. the measure would've allowed business owners to refuse service based on their own religious police. this is what the governor had to say. >> i have not heard of one example in arizona where a business owner's religious

liberty has been violated. poorly worded and can result in negative consequences. , ioing all of the arguments have vetoed senate bill 1062. >> business leaders, sports leagues and others widely opposed the bill. so did many politicians. john mccain included. , butill has been vetoed damage has already been done to arizona' patient. with us is the president of greater phoenix economic council. how much damage has been done? >> really minimal. obviously, from a brand perspective, this is not what you want your community to be talked about for five days. i think the facts and evidence are on the side of arizona. it has been a tremendous witness . 85% of verizon opposed this bill.

john mccain and jeff flake called for the beta. of arizona opposed this bill. the evidence will show that we are able to work through any of the short-term complexities that a policy like this has created for us. >> a litmus test. passedt your governor and your legislature failed the . >> it's a young state. all about what's next. at one thing i like to say to people about greater phoenix is that it's the best placed in america to be new. people thisillion year. it is the nature of politics going back to barry goldwater and even john mccain. profile debategh kind of political environment.

it really says, not so much that the bill passed, but that the bill met the opposition that it did. apple it come intel, american is anes and others, it litmus test that's a little pies the fact that arizona is open to business and we are very grateful and ja for the veto. has is the same state that raised all kinds of controversy around martin luther king day, for example. it passed one of the most discriminatory immigration laws in the country. some of which we have been rolled back by the courts. what does it say about the state? that is the lens through which corporate america is looking at arizona. corporate america, whether it be businesses like apple or sports leagues like the nfl, have to make decisions about how much business to do in the state and how many jobs to create in the

state. are you concerned about that? we are the only state that passed martin luther king day as a holiday on the ballot. i wonder how me states right now with complex racial politics in the east or the south could put martin luther king day on the ballot and pass it today. we did that. the conversation on immigration i think was a law and order issue. we were selected for the super bowl after putting its largest u.s. investment in may say come arizona after the martin luther king conversation come after the immigration debate. because people take a careful look at this market and this is -- it is the third-largest market in the united states. top 10 in business environment. number one in small business formation in the united states. we are trending to be the

number one producer of jobs in the united states. when you put the right business environment together, low regulation, great education outcomes like we are, that really cuts through political debate. that is why companies like apple and intel and american airlines choose our community to be their home. >> i would look to thank you. business at large and small today are celebrating the veto by jan brewer. the phoenixt of greater economic council. let us down west. google is swinging for the fences with its nose business -- its newest business, google fiber. it is up and running in a few cities. we sent cory johnson to find out how it's going.

how did they get google fiber? when you think high-speed internet, you don't think of provo. an interesting story. it talks a lot about this boom in technology. it is wired for optical networking during the.com bubble . the fiber was not a successful business for them. it was difficult for them to get the benefit of that. we went to google, which was starting to roll out fiber services. they did a test program in kansas city. handed over their fiber problem to google. listen to what the mayor had to say yesterday. >> everybody's excited. everybody sees a movement in provo. every discussion was about

google. application -- provo is a city that loves startups. it was a perfect match for google. the speed of the fiber in every home seems to be a perfect match. they expect real change to happen because -- it is hard to imagine how much faster this internet speed is. as much as 100 times faster than what people tend to get with dsl or even three times with a cable modem can get. >> how much of a catalyst can google fiber be for business? and job growth? if businesses relocate to a city like provo because they can gain access to super high-speed internet. go with the, we will see.

we don't really know. it has only happened in kansas city inside. they say a lot of businesses have moved all over the midwest to kansas city to get access to this. here in provo, we are feeling realistic, talking about when these homes get this internet coming into their houses. kansas city's bond rating improved. they cited google fiber is one of the reasons for economic outlook for kansas looking better. is,other interesting thing what kind of a businesses will take advantage of this? beenurse, it has always the internet backbone. optical into the home something that at&t and verizon and comcast just have not been willing to spend the money to do. we talked about the things that are possible with this kind of business. >> we work with some of the largest cloud-based customers. companies like facebook, pandora

, linkedin. i would suggest the network is not -- we have been able with flash memory to accelerate their services and get real-time results. network that is faster yet again, i'm confident those companies will come up with new services that will utilize that speed. in provo, a lot of publicly traded companies. three companies that have billion dollar cash infusions. big growth here. they're hoping that google fiber will lead to even more of that. >> maybe google fiber will be enough to take you to provo. >> maybe. >> cory johnson. we will be back in a couple of

minutes here on "market makers." ♪

welcome back to market makers. i'm stephanie ruhle. moments ago, i hung out with -- he is getting even more serious. he wrote a scathing letter about the company back in the fall, saying that they needed to take a look at what the ritalin with their real estate assets, questioning how the company was running its business. of thehas a 10% stake shares out there. and recently, the company started to acquiesce, giving money back to shareholders. they are not enough. they pointed dave. -- they appointed dave.

he is the right candidate for the board, but not enough. he suggested harry wilson, who we know very well. he has worked with dan extensively. he was the one who worked on gm the formers well as m&a guide. he ran a luxury jewelry store in france. he just said, we had a chance to speak to him first. he is not sing the ceo has to be out. he's willing to work with the need to makey progressive changes of what they have done so far. clearly, it is not enough. >> there are degrees of hostility. some people may interpret his actions as something akin to hostile. he may not be trying to dump the entire board. he may be supporting the current goodman, saying he is a

guy. perhaps the right person to be there. but he wants to put in harry wilson. that is not going to go down well. >> without a doubt. he is saying there is to men's value in the company. it has been taking action. but not enough. he said, i am more than willing to work with them. you know from the way activist investors role. think of the statements we get out of bill ackman. that is not dan's tone here. he is serious. the moment it becomes an issue like this is the moment it ceases to be a private conversation. >> it was not a private conversation in the letter >>. >>with all activists, they would much rather do it behind the scenes. in this case, i guess, the

-- he is an activist. >> we will be back in a moment. talking about what options are telling us and where stocks are going. ♪

>> that is going to do it for "market makers" today. tomorrow, somebody rarely hear

from. one of the best hedge fund managers and 2013. in 2013. billionees $8 in partners. >> it will be an exclusive. now, it's 56 past the hour. bloomberg television is taking we are the markets." >> diving straight into derivatives with today's options. stocks are rising amid janet yellen's testimony. the s&p rose above its record close for the fourth straight day today. architect telling us where stocks are headed from here. jarrod us now is purel leavy. tell us what you're singing options market that say that market participants is incompetent because the s&p is back near record highs. geeks tend to look at volatility smile or ski. what that means -- i'm looking

to see how quick the price rose. at this rally has been happening and as we have been spending with this wedge, if you look at the volatility, they're getting more expensive. more expensive than its out of the money call. what that says to me is, market participants really are that confident in the rally. that confident in the rally. they think there'll be more of a sellout than a breakout rally from here. that's from the options perspective. options definitely are not calling the big bullish rally here in the next couple of weeks. >> so the skew is deepening despite the rally. another stock in the news. jcpenney shares down more than 20% after the struggling department store forecasted an increase in annual revenue. what is the market: jcpenney?

their sales and department in january actually declined four percent. it was not that fantastic ever report. the options market are playing it up. here's two things that are happening. double the price of calls if you look out in time. they're expecting a lot more volatility. next week, options expiration implied volatility is at 93%. what that means in layman's of 15%-18% byve next week would not be out of the question for the options market. if you're looking to trade, one thing i'm looking at is a risk reversal. selling the august by put to by the august call. that way, you're not buying a stock at $10. you're reducing your risk down to $4.85.

see what it takes for stock to move up north of 20%. i know you're watching tesla. the company announced plans for factorylion battery to produce batteries for the mass-market electric cars. shares -- would you buy the stock here? >> i would not buy the stock. it is my job to manage risk. >> they just doubled the price target. >> they did. i love that report. i read it in depth last night. i agree with them. factory is agig game changer and the reason why panasonic is putting $1 billion into the deal. i like it. traded, i'm to going to go more cautious just because the stock is there. pressingarkets are not

the high volatility because it has yet to be seen with the companies. call -- as long call sprea as it's above 250 by june, i make 100% on my money. for joining so much us. we are on the markets in 30 minutes. "lunch money" is up next. ♪

x welcome to "lunch money," where we tie together the best and videos in business news. i'm adam johnson. here's a we got today in tech. google dishes fiber. this search giant wants to replace the cable guy and will do it one city at a time. and building manhattan's brand-new neighborhood. and in motors, tesla's road to creatency with a plan to the largest battery factory in the world. we will take you there. and in sports, the tar heels. how some of the athletes at university of north carolina